Tuesday, July 14, 2015

Court Clarifies Mental State Requirement for 'Color of Official Right' Extortion, Rejects Challenges to 'Sophisticated Means' Enhancement

In United States v.Fountain, Nos. 13-3023 &c., the Court finds occasion to clarify the elements of extortion under “color of official right” within the meaning of the Hobbs Act, 18 U.S.C. § 1951.  The three appellants were found guilty after a two-week trial of participating in a tax refund scam.  A Hobbs Act count named only one defendant, an IRS employee who drew upon her knowledge of internal auditing procedures to avoid the red-flagging of fraudulent applications for certain tax credits.  The applications were submitted using personal information supplied by third-party claimants in exchange for a portion of the refunds.  The Hobbs Act count rested on one claimant’s agreement to pay $400 to the IRS employee in the belief — on the government’s theory — that it would help the claimant obtain the refund and avoid an audit.

Distinguishing certain broad language in two prior opinions, the Court (per Krause, J., joined by Fuentes and Fisher, JJ.) holds that to prove extortion under color of official right, the evidence must show: “(1) that the payor made a payment to the defendant because the payor held a reasonable belief that the defendant would perform official acts in return, and (2) that the defendant knew the payor made the payment because of that belief.”  (Emphasis supplied.)  That some earlier decisions had not explicitly referenced the italicized mental state requirement, the Court explains, reflects only that the reasonableness of the payor’s belief was uncontested and obvious in those cases.  Applying the clarified standard, the Court upholds conviction based on the $400 payment despite what the IRS employee submitted was insufficient evidence as to the claimant’s state of mind in making it.

The Court also upholds a bevy of sentence enhancements.  It first rejects challenges to the two-level enhancement for “sophisticated means” under the fraud guideline at U.S.S.G. § 2B1.1.  The enhancement can apply, the Court concludes, based on conduct “less sophisticated” than the examples set forth in a guideline application note referencing “the use of fictitious entities, corporate shells, or offshore financial accounts.”  While the opinion proceeds to reiterate that the sophisticated-means enhancement requires conduct showing “a greater level of planning or concealment than a typical fraud of its kind,” the ensuing analysis states that “factors like the duration of a scheme,” the “number of participants,” and “efforts to avoid detection” may be relevant.  Nonetheless, the Court also points to reliance on specialized expertise, as in the IRS employee’s use of “inside knowledge of the IRS’s enforcement thresholds” and another defendant’s electronic filing of claims in a manner traceable only to a third party’s wireless network.

The Court also rejects more fact-specific challenges to enhancements for use of a minor, see U.S.S.G. § 3B1.4, aggravating role, see id. § 3B1.1(a),  loss amount calculation, see id. § 2B1.1(b)(1), and substantive reasonableness, see 18 U.S.C. § 3553(a).  As to role, the Court firms up the rule that the defendant must have exercised “some degree of control over at least one other person involved in the offense.”  Regarding reasonableness review, the Court repeats what it has occasionally described as a rule that “[s]entences that fall within the applicable Guidelines range are more likely to be reasonable than those that do not.”  Of course, district courts may not indulge any such presumption when sentencing in the first instance.  Nelson v. United States, 555 U.S. 350 (2009).

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